I am Senior Policy Analyst of the D.C.-based think tank the Information Technology and Innovation Foundation, covering all aspects of energy innovation policy and its central role addressing global climate change. Before joining ITIF I served as a Fellow at the Breakthrough Institute and the National Academies of Science. I’m originally trained in meteorology and science/technology policy.

Nipping at the heels of Mayor Bloomberg’s climate-tinged Presidential endorsement, Hurricane Sandy, and President Obama’s victory speech shout-out to climate change is a reinvigorated debate on carbon pricing. This week, the American Enterprise Institute (AEI), the Brookings Institution, the International Monetary Fund, and Resources for the Future co-hosted a daylong conference on designing a U.S. carbon tax. The Congressional Budget Office released a report discussing the socio-economic impact of different carbon tax structures. Years of climate silence has turned into a November of climate chatter.

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To be sure, escalating the debate on climate policy is good. It’s long, long past due and America needs to undertake it. But climate hawks’ increasingly myopic focus on carbon pricing as the ‘holy grail’ of climate policy obscures a central principle: addressing climate change requires aggressive public investment policy. Period. Without public investments in developing cheap clean energy technologies and then supporting their commercialization and scale-up, Americans won’t be able to drastically reduce their carbon footprint. A carbon price – be that a carbon tax or cap-and-trade – is not, by itself, capable of dramatically reducing carbon emissions at the levels needed to mitigate climate change.

“Numerous scholars have demonstrated that, while the scale of the needed carbon emissions reductions is extremely large, price-based systems by themselves are not likely to induce sufficient technology change to deliver the needed reductions, particularly given the “lock-in” of cheap, readily available dirty technologies and the modest pollution prices that are tolerable to politicians…A major problem with all carbon pricing solutions is the fact that the private sector will not (for recognized reasons) invest adequately on its own in low-carbon solutions and technology change – even in the presence of carbon pricing.”

Instead, as the authors argue, a carbon price can be used as a vehicle for investing in clean energy technologies. Muro and Rothwell propose implementing a gradually increasing carbon tax starting at $20 per ton CO2 to raise an average of $150 billion per year in revenue. The first $30 billion of revenue, or 20 percent, would immediately go into a trust fund to support clean energy innovation programs. The remaining revenue would go to deficit reduction.

Their proposal is the latest to link carbon pricing with investments in clean energy. Thinkers from the Breakthrough Institute, AEI, and Brookings previously proposed a $5 per ton carbon tax to fund, in its entirety, clean energy innovation. And ITIF (which I coauthored) proposed a $15 per ton “innovation carbon tax” that would invest 20 percent of revenue in a trust fund to support clean energy innovation initiatives and the remaining revenue to go towards expanding corporate tax incentives for R&D, education, and investments in equipment to boost U.S. competitiveness and spur innovation across the economy.

For all three proposals, the idea is the same: climate policy is all about public investments in clean energy. A carbon tax is one way (but not the only way) of facilitating a dedicated revenue stream for those investments. It’s important not to lose this fundamental policy goal in any climate policy debate.

That’s not to say that a carbon tax not tied to public investments in clean energy wouldn’t have any impact. Former Republican Congressman Bob Inglis, for example, proposes implementing a carbon tax and use all of the revenue to reduce other federal taxes. Such a revenue-neutral proposal would still help reduce carbon emissions at the margin, but not nearly enough compared to the deep cuts necessary. Nonetheless, the proposal would still be a net positive for addressing climate change, albeit more modestly. More so, a carbon tax could also help boost U.S. economic competitiveness if it were used to lower corporate tax rates, for instance.

Ultimately, though, it depends on that the actual goal of a carbon tax is. If it’s to address climate change, then a carbon tax tied to public investments is a much more robust and high impact policy solution than one without. Climate policy design – be that a carbon tax or not – matters.

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